Tuesday, October 17, 2006

Virgin's Corporate Strategy

1. Richard Branson and the Virgin Group

Virgin’s first and most obvious distinctive resource is Richard Branson and the ‘Virgin People’ that make up the organisation. Richard Branson’s charismatic style and entrepreneurial flair is an asset that other organisations are unable to replicate, and it is his personality that is synonymous with the Virgin Brand and that makes the company unique. Similarly, the Virgin group attracts ‘Virgin People,’ who are ‘only a certain type.’ Together with Branson, the Virgin People form the human capital that is distinctive to Virgin that is impossible for other firms to copy.

Related to the people who make up the firm, is the ‘Virgin culture’ that has been built over decades and that distinguishes the work environment within Virgin Group from other organisations. It is a culture that is ‘not looking for clones,’ that is ‘like a family’ and is one that requires employees to have the ‘Virgin Flair.’ These unique attributes present in Virgin employees meld together to create a distinctive corporate culture that only the Virgin Group can claim to have.

Richard Branson’s personality is synonymous with Virgin’s strong branding & reputation. The brand was ‘recognised by 96 percent of UK consumers’ and is associated amongst consumers with ‘fun, innovation, success and trust.’ Virgin has been able to sustain the Virgin identity across multiple businesses in a way that that very few other corporations have, and the pervasiveness of the Virgin brand creates unique brand equity that is difficult for competitors to replicate.

2. Corporate Synergies

The corporate strategy of the Virgin Group is to operate like ‘a venture capital firm based on the Virgin brand.’ This strategy involves non-related diversification at the individual business unit level. Meanwhile, synergies are created from hierarchical relationships and the interaction of the corporate head office with individual business units. By leveraging the Virgin Brand which has established prominence in the minds of consumers, Virgin is able to enter new business areas with a bang and shake up existing orders. The unique Virgin culture also allows Virgin to break into new markets and execute its ventures very effectively.

Virgin’s corporate strategy is best described in the Virgin Charter – the individual businesses are focused and develop as autonomous enterprises under a single unified brand name. This decentralization of organizational structure and decision making allows an entrepreneurial environment for managers to pursue their businesses effectively, while avoiding the bureaucracy associated with large centralised corporations. At the same time, the individual businesses benefit from the world-wide, inter-industrial reputation of the parent corporation’s Virgin brand and are able utilize this brand recognition in their marketing efforts. This benefit of corporate parenting would not be available to them if they were operating under their own subsidiary brands, and is perhaps the greatest source of synergy within the Virgin Group. In this manner, Virgin is able to enjoy the benefits of both smaller entrepreneurial organisations and large conglomerates without the associated problems of bureaucracy and brand conflict that can often feature in diversified corporations.

Furthermore, Virgin has been able to deal with the potential downsides of autonomy and decentralization. To prevent the breakdown of communication links and individual business units pursuing their own strategies in an uncoordinated fashion (that could potentially be detrimental to the umbrella Virgin brand), the Virgin Charter sets out a management system and internet business strategy that takes advantage of information technology and the digital age to further establish the Virgin brand. A single web address, Virgin.com, is where consumers can go to have access to all the Virgin services under a single portal. This strategy helps to reinforce the corporate parenting strategy and enhance the synergies already derived from the corporate branding of the Virgin Group. By aggregating all the services into a single Virgin portal, the customer is able to access multiple services through a single distribution channel, and is enticed to turn into a ‘Virgin Customer’ where he comes to Virgin for his telecommunications, banking, terrestrial and extra-terrestrial transportation (Virgin Galactic), entertainment and internet service needs. In this way, the disparate Virgin businesses are able to gain from the successes from their corporate siblings – Virgin Rail gains customers referred from Virgin Mobile visiting the Virgin.com portal, while Virgin Money gains customers referred from Virgin Records, and so on. In comparison, competitor banking companies would hardly dream of marketing their services to a music crowd, while competitor railway companies would be hard pressed to market to mobile customers of an unrelated company. Even though the individual business units are in unrelated fields, the unified corporate strategy allows them to contribute to each other in a synergistic manner.

3. Threats to Virgin’s corporate strategy

The success of Virgin Group hinges upon the corporate parenting strategy which is led by founder Richard Branson. The sustainability of Virgin Group’s competitive advantage depends on how well it continues to retain the Virgin culture and execute the strategy of decentralization under a unified branding. At least in the short run, with Branson continuing to lead the company, the strategy looks very strong and almost ‘unstoppable.’

In the longer run, however, Branson will have to put in place a strong succession plan and fill the corporate head office with executives who are able to understand and execute the Virgin Charter. While Branson himself might be irreplaceable, he can leave his legacy by ensuring that his vision is sustained through the Virgin Culture and Virgin People.

Virgin also has to ensure that it selects the industries it wants to enter very carefully. A single misstep could tarnish the Virgin Brand, and this could be disastrous for the group as a whole – unification under a single brand is a double-edged sword that can cut both ways. In addition, Virgin needs to continue to ensure that the individual business units perform in line with the greater Virgin brand, and not branch off in an unrelated manner. Doing so could dilute the Virgin brand if business units perform their operations in a way that lacks the fun, trust and quality that is associated with Virgin.

If Virgin is able to build a strong leadership engine, carefully evaluate future business opportunities, and retain the branding coordination between its diverse businesses, then its corporate strategy is well positioned to deliver a bright future for the company.